About 20% of the American population is retired, which represents nearly 66 million people. Despite the large retiree market, however, venture capital investments in new tools and services to help “decumulation” have been relatively limited.
Decumulation is the phase of life where retirees must manage their nest egg and try to avoid running out of money.
Investors flocked $17.8 billion in private U.S. fintech (fintech) companies in 2020, up from $14.8 billion in 2019. Only a tiny fraction of this increase in fintech investment is going to decumulation-related tech startups.
There are several reasons venture capitalists aren’t investing in decumulation (which we’ll discuss later in this article), but despite the relative funding shortfall, we’ll first look at new services for Americans. retired.
To oversimplify, innovation in this space can be divided into three categories: new services to help family members manage the finances of their loved ones, tools to help with estate planning, and businesses seeking to modernize annuities and retirement products.
Also see: Here’s another reason to wait until age 70 to claim Social Security
Assistance services for co-management of a loved one’s retirement
America’s mass of retired baby boomers may need help from family members to manage their retirement nest egg, longevity risk and potential mental decline. Companies like Warning, EverSafeand True Link Financial help loved ones monitor and/or manage a retiree’s financial accounts and help protect against fraud, scams and poor financial decisions.
The exact products offered by these three companies vary, but the general idea is to use technology to be proactively informed about a loved one’s finances rather than discovering problems after it’s already too late.
“Fintech tools protect family members by scanning financial activity for anomalies on all related accounts, credit cards, loans, and real estate records,” according to Howard Tischler, co-founder and CEO of EverSafe . “This is how scammers operate and why their schemes can persist for months or even years undetected. Alerts sent to a designated team of caregivers and/or trustees also make a critical difference in identifying problems before a lifetime of savings is lost.
Read also : Do you think you are ready to retire? It’s not as easy as you might think
Online tools to simplify and manage the succession process
Many people need help navigating the maze of federal and state rules when it comes to estate planning and inheritance. Despite the word “estate” conjuring up the old mansions of Golden Age robber barons, every American needs estate planning in retirement. Estate planning is necessary to reduce both your personal tax bill and that of your heirs.
Fabric and Confidence and Will are examples of two relatively new technology companies that can help with the estate planning process. In addition, many of the major online legal support services such as LegalShield, Legal mentionsZoomand RocketAvocado offer estate planning elements fully or partially online. Innovation in this space is not limited to the United States: Farewellbased in the UK, is an example of a foreign technology company offering online estate planning to its local market.
Read: Here’s how to start managing all your stuff and what to do with it
Companies Modernizing Annuities and Retirement Products
In many wealthy countries occupational pensions are becoming relatively less common and/or less reliable. This shifts the burden of managing a retirement nest egg and longevity risks onto the individual. Creating a simple, transparent, and easy-to-use digital retirement or annuity product can help solve the retirement crisis in America and around the world.
Unfortunately, fintech activity is relatively limited in the area of pensions and annuities in the United States. Payable is the only independent US direct-to-consumer annuity or retirement technology startup that I know of.
It is perhaps unsurprising that there are more pension and annuity technology innovators overseas, where pensions are more common. Examples of technology companies trying to modernize retirement and annuity products in overseas markets include Maji, Penfold and PensionBee UK, Total Trust in Ireland, Vantik in Germany, and size in Denmark.
To see: Pensioners: pay attention to your pensions; inflation doesn’t just affect grocery bills
Why so few tech startups targeting retirement?
Over the years, I’ve asked founders and venture capitalists why the number of tech startups and overall investment in the decumulation phase of life is so low compared to the millions of retired Americans. . In response, three reasons are cited for the relatively limited fintech activity in decumulation.
First, venture capitalists (VC) are looking for companies with the potential to “hockey stick”-style rapid revenue growth. Since supporting retired users usually involves customers and accounts that will become less valuable over time, Venture capitalists are often skeptical of a decumulation-related company’s ability to achieve “hockey stick” hyper-growth.
Second, the “typical” starter manual focuses on building scalable, web-centric business models with minimal human customer service and support. VCs often assume that companies that need to support seniors will need an expensive customer support system and lots of manual follow-ups from human reps. Pretty much or not, there is inherent skepticism about a web-centric business model aimed at retirees.
Third, venture capitalists fear that the retirement industry is a “sold, not bought” industry. The perception is that most baby boomers are being sold retirement products by their financial advisor and they don’t shop around, read reviews online, and buy the best retirement products available. Venture capitalists fear new online decumulation services may gain major traction as financial advisers and brokers control relationships with potential clients.
Despite these perceptions, the massive size of the “retired” market calls for more innovative tech startups and venture capital backing. Venture capital investment in the health and well-being of retirees has already begun to pick up.
For example, in 2020, Tech Stars and Hub companies (a Melinda French Gates company) launched the Future of Longevity Accelerator to support early-stage innovation for older adults and their caregivers. The program has already helped launch 20 tech startups.
“Investor interest in this category is growing at an explosive rate, as recently demonstrated by our culminating event last week, Demo Daywhich received 2½ times more viewers this year compared to last year,” said Keith Camhi, Managing Director of Techstars Future of Longevity Accelerator.
It’s only a matter of time before the tech sector’s interest and investment in decumulating and managing financial assets in retirement catches up with American demographic reality.
Grant Easterbrook is a fintech consultant. His work in the industry has been quoted in the media more than 150 times. Easterbrook also co-founded fintech startup Dream Forward, which was acquired in 2020. Easterbrook graduated from Bowdoin College in Brunswick, Maine and resides in New York.
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